Accounting Definitions

Tess Morris
Flashcards by Tess Morris, updated more than 1 year ago
Tess Morris
Created by Tess Morris over 6 years ago
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12 Accounting Flashcards on Accounting Definitions, created by Tess Morris on 10/02/2013.
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What is Accounting? Accounting is the process of identifying, measuring, recording and communicating financial information in order to permit informed judgements and decisions by users of information.
What is Data? Anything that can be measured and given a value
What is Information? When figures are summarised or rearranged in a structured fashion
Quantitative Date Informations expressed in numerical form and which is measurable
Qualitative Information All other information such as legal, social, environmental or ethical matters etc
Financial Information May include budgets, ratios, sales results and current interest rates
Non-Financial Information may include benchmarks, staff turnover and market share
Relevance? Financial Information mud have value in terms of assisting users in making and evaluating decisions about the allocation of financial, physical and human resources.
Reliability Financial Information must be free from bias and undue error
Materiality Information may be relevant in the general operations of an enterprise but might not be of significance when the entity is reporting
Comparability This is achieved by comparing an entity at one point in time and over time or an entity with other entities at one point in time and over time
Understandability Financial Information must be presented in a form that assists users in its understanding
Timeliness Financial Information may lose its relevance if there is a long time span before the information is presented to interested parities.
Cost Vs Benefits Accountants need to consider whether the provision of certain financial information will stimulate more benefits than the costs incurred.
Internal Users Include all levels of management and other governing bodies of an organisation
External Users Include present or potential investors and present or potential creditors
Clarify The clarification stage involves setting the decision in its context by giving some thought to: objectives, problems diagnosis and constraints
Analyse This staff involves doing the research and fact finding necessary to provide a sound base of information to support the decision making: involves information and ideas
Choose Where the decision is made. Choices are made between small numbers of alternatives.
Execute Once the decision has been made, you need to be sure it is put into practice and followed up. Finally review the decision to see how well you achieved your objectives following the three steps; planning, controlling and reviewing
Regulatory Frameworks Companies have to comply with the regulations set out by the Australian Securities and Investments Commision
Accounting Entity Any organisational unit for which accounting records are kept and about which accounting reports are prepared
Legal Entity The law does not see the separation of the business from the owners in the case of sole proprietors and partnerships.
Reporting Entity Any business or part of a business that prepared a report on its financial activities.
Accounting Process This is the process required to convert raw transaction data to useable information for statement users.
Monetary Unit Concept "Accountants consider only things that can be expressed in monetary terms"
Dual Aspect Accountants see total assets as equal to total equities
Accounting Entity Accountants consider a business to be separate and distinct from the owner.
Legal Entity In the eyes of the law the owner and the business are seen as one in the case of sole traders and partnerships
Going Concern Accountants assume that a business has an unlimited life and that it will continue to operate in the foreseeable future and in the same general line of business.
Accounting Period Accountants split the life of the business up into arbitrary time periods for recording and reporting purposes
Historical Cost Accountants normally value assets at the price paid to acquire them
Realisation Accountants recognise revenue when goods or services have been delivered regardless of when cash for these is received.
Accrual Accounting Accountants measure profit on the basis of revenue earned during the period and expenses used or incurred during the period
Consistency Accountants consistently apply accounting procedures and policies from one period to the next
Prudence Accountants should exercise care and caution when dealing with uncertainties in the measurement process.
Reliability Accountants should disclose all information relevant to statement users
Materiality Accountants record and report only those items which are material or important enough to affect the decisions of statement users
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